First, a model of horizontally and vertically integrated firms is developed. These firms are then embedded in a general equilibrium model of trading countries. It is shown how multinational corporations emerge as a result of differences across countries in factor compositions. Intersectoral, intraindustry, and intrafirm trade can coexist, and intrafirm trade takes place in invisibles (headquarter services) and intermediate inputs. It is shown how the various trade components depend on the structure of the world economy. The model predicts trade patterns which are close to observed trade patterns.
The Helpman-Razin model of international trade under uncertainty is extended to allow for country-specific productivi ty shocks. It is shown that, for the multiple-sector multiple-factor case, there exists a set of interesting sufficient conditions under w hich it is possible to predict the pattern of international trade in securities, goods, and factor content on the basis of cross-country d ifferences in factor endowments. It is shown that, under these circum stances, some well-known empirical tests have to be modified. Copyright 1988 by The Econometric Society.
MANY PROBLEMS IN MACROECONOMICS, both of closed and open economies, are analyzed by means of expenditure and money demand functions. The properties of these functions play a major role in the derivation of results in these investigations. Although specifiers of such functions have in mind optimizing behavior by economic agents, explicit derivation of their properties from optimizing behavior is seldom undertaken. In many cases in which they are undertaken, it is assumed that utility depends on real money balance (e.g. [2]), an assumption which many find undesirable. There have been recently attempts to deal with macroeconomic issues by explicitly modeling the role of money in the economy thus avoiding the need to model it as an argument of the utility function-and by explicitly using optimizing behavior of economic agents (e.g. [3,5,6]). However, in those cases either the expenditure and money demand functions were characterized for steady states (e.g. [5,6]), or they were not derived because they were not required [3]. In this paper I derive an expenditure and a money demand function which arise from a problem of optimal allocation of consumption over time in which all payments are made in the form of money, there are liquidity constraints, and money is the only asset. Utility is derived only from consumption. These functions can be used to investigate macroeconomic problems as demonstrated
[Defining each good (factor) in each different country as a distinct good (factor), one can use Scarf's algorithm to solve general equilibrium problems for a trading world. The dimension of such problems grows very fast with the number of goods (factors) and countries, making computations extremely costly. Here we present a method for solving general equilibrium problems for a trading world which can be applied to a class of problems, and which requires considerably less computation time than the direct application of Scarf's algorithm.]
Recent attempts to resolve the international debt crisis have lead some countries to engage in debt-equity swaps. The paper explores conditions under which such transactions are beneficial to the debtor as well as the creditors. It identifies a market failure that may prevent the emergence of actually beneficial swaps and analyzes the effects of swaps on the investment level in the debtor country. The latter helps to evaluate the contribution of this policy to future difficulties with debt service payments.
Using the idea that firm-specific assets associated with marketing, management, and product-specific R & D can be used to service production plants in countries other than the country in which these inputs are employed, I develop a simple general equilibrium model of international trade in which the location of plants in a differentiated product industry is a decision variable. The model is then used to derive predictions of trade pattern, volumes of trade, the share of intra-industry trade, and the share of intrafirm trade as functions of relative country size and differences in relative factor endowments.
Stabilization programs in open economies typically consist of two stages. In the first stage the rate of currency devaluation is reduced, but the fiscal adjustment does not eliminate the fiscal deficit that causes growth of debt and loss of reserves, making a future policy change necessary. Only later, at a second stage, is this followed by either an abandonment of exchange rate management or by a sufficiently large cut in the fiscal deficit. We study how different second-stage policy changes affect economic dynamics during the first stage. These changes include tax increases, budget cuts on traded and nontraded goods, and increases in the growth rate of money.